London close: Stocks dip as CPI comes in ahead of forecasts

London's top-flight index ended the session little changed, even as the pound rallied on a higher than expected reading from the Office for National Statistics on consumer prices for January, increasing expectations that the Bank of England will hike interest rates in the spring.

The FTSE 100 dipped 0.13% to finish at 7,168.01, while the pound was up 0.39% against the dollar at 1.3888 and 0.2% lower versus the euro to 1.1235.

According to ONS, January's consumer price index was 3.0% higher than a year ago after easing to that level at the end of last year from a peak of 3.1%. This headline rate was in line with the Bank of England’s inflation report last week, but stronger than the consensus forecast of 2.9%.

Core CPI, which strips out more volatile prices such as fuel and food, rose 2.7% in January, faster than the 2.6% predicted, up from the 2.5% rise seen in the month before and at its joint-highest level since 2011.

However, CPIH, ONS's preferred measure of inflation as it includes owner-occupiers' housing costs, rose by 2.7% for the second month in a row, which was shy of the 2.8% expected by economists.

A large downward contribution from fuel prices, which rose by less this year than they did in January 2017, kept headline CPI from returning to 3.1%, though this was offset by a rise in the contribution from prices in the services sector, in particular for recreation and culture.

Producer input and output price inflation both ticked down in January.

Joshua Mahony, market analyst at IG, said: "While traders were fixated on whether the headline figure would drop back below 3%, the real head turner turned out to be the core CPI reading, which jumped back to 2.7% to negate last month’s 0.2% fall.

"With core CPI now back to the joint highest level since 2011, the intense price pressures remain on the BoE to raise rates, with markets factoring in a greater than 50% chance of two or more rate rises in 2018. Unfortunately for Mark Carney, his recent reasoning that inflation could rise over the short term due to energy prices appears to be undermined, with the core reading showing that UK inflation is on the rise irrespective of energy prices."

In corporate news, tour operator Tui cruised to new record highs as it got off to a strong start for its financial year with sales and underlying earnings both much improved on last year.

Mining giant BHP Billiton was in the black after saying it would book a $1.8bn charge due to cuts in the US corporate tax rate, but that the tax reform will have a positive impact on the group's US attributable profits in the longer term.

British Land edged higher as Japanese bank Sumitomo Mitsui signed a 20-year lease on 161,000 square ft at the 100 Liverpool Street redevelopment at Broadgate.

Computacenter fell as it posted the results of its tender offer, saying that just under 44.1m ordinary shares were validly tendered, with the strike price determined to be 1,170p.

On the broker note front, Smiths Group was on the up as Barclays initiated coverage of the stock at 'overweight', while Dixons Carphone was lifted by an upgrade at Cenkos.

Imperial Brands was hit by a downgrade to 'neutral' at Piper Jaffray and Inmarsat took a beating after HSBC cut its price target on the stock to 530p from 570p and said the company is being hurt by recent weakness of the dollar versus the pound and that the dividend is uncertain.

Market Movers

FTSE 100 (UKX) 7,168.01 -0.13%
FTSE 250 (MCX) 19,320.08 -0.31%
techMARK (TASX) 3,243.83 -0.36%

FTSE 100 - Risers

Just Eat (JE.) 853.20p 3.75%
WPP (WPP) 1,335.50p 3.57%
Glencore (GLEN) 375.80p 2.48%
Evraz (EVR) 360.60p 2.36%
Standard Life Aberdeen (SLA) 400.90p 2.06%
BHP Billiton (BLT) 1,531.60p 1.77%
Anglo American (AAL) 1,670.40p 1.70%
Rio Tinto (RIO) 3,955.00p 1.53%
Smurfit Kappa Group (SKG) 2,478.00p 1.47%
CRH (CRH) 2,458.00p 1.24%

FTSE 100 - Fallers

Severn Trent (SVT) 1,725.50p -3.39%
United Utilities Group (UU.) 663.60p -3.10%
Hargreaves Lansdown (HL.) 1,640.50p -2.61%
Relx plc (REL) 1,455.00p -2.32%
Imperial Brands (IMB) 2,600.50p -2.29%
G4S (GFS) 248.80p -2.16%
BT Group (BT.A) 225.85p -1.97%
British American Tobacco (BATS) 4,381.50p -1.87%
Pearson (PSON) 653.60p -1.74%
National Grid (NG.) 736.80p -1.62%

FTSE 250 - Risers

Polypipe Group (PLP) 402.40p 4.14%
Fidessa Group (FDSA) 2,505.00p 3.73%
Cineworld Group (CINE) 229.80p 3.33%
Brown (N.) Group (BWNG) 205.20p 2.75%
IWG (IWG) 232.80p 2.56%
Hochschild Mining (HOC) 220.80p 2.55%
Vedanta Resources (VED) 731.20p 2.29%
IG Group Holdings (IGG) 785.00p 2.28%
Purecircle Limited (DI) (PURE) 428.00p 2.27%
NewRiver REIT (NRR) 304.00p 2.18%

FTSE 250 - Fallers

Inmarsat (ISAT) 426.10p -5.67%
Computacenter (CCC) 1,080.00p -5.43%
Mitie Group (MTO) 150.20p -5.30%
Capita (CPI) 183.45p -4.03%
Petrofac Ltd. (PFC) 403.90p -4.02%
Vectura Group (VEC) 78.10p -4.00%
Convatec Group (CTEC) 187.40p -3.58%
BCA Marketplace (BCA) 161.00p -3.13%
Greencore Group (GNC) 187.00p -2.93%
Entertainment One Limited (ETO) 289.40p -2.89%